The Trillion Dollar Housing Roller Coaster

The analogy between real estate and roller coasters is obvious. Everyone knows they both have crazy ups and downs. With the U.S. real estate ride lately, we are all wishing we were riding on the kiddie roller coaster with the small bumps and turns. Unfortunately, it’s more likely we are riding on the Kingda Ka roller coaster with its record-breaking 418-foot drop. The RealEstate.com team brings you breaking real estate news weekly, and we’ve noticed a trend – real estate news is positive one month and dismal the next. We set out to find a simple way to measure the status of the market, and we found one way to do just that. Here are the results

Here’s a little bit about our methodology: We calculated the total value of the housing market for three separate months – the peak (March of 2007), the trough (Nov of 2011) and the latest (June of 2012). We then calculated the theoretical value of the housing market during each of these periods, by multiplying the average price of a sold home by the estimated number of housing units, using numbers supplied by the U.S. Census Bureau.

These numbers are what they are, and as long as we believe the Census Bureau is accurate in their bean counting, they are absolutely true. But I know what some of you are thinking. Have we really recovered that much market value since November of last year? Maybe, maybe not. A lot of smart people have calculated that the rebound from the bottom has been less than that, and they may be right.

For one thing, our numbers are not seasonally adjusted. Sale prices in November are typically lower than prices in the summer, so part of this increase could be due to seasonality. Also, the prices could be affected by the mix of houses being sold. Since not all houses are sold every month, the increase in home sale prices could be because more expensive houses are being sold now than they were in November, and not necessarily because the value of those houses has increased. And finally, this is monthly data, and month to month there are going to be some random variations in the data. (In fact, the actual trough came in January of 2009, but the bottom was so sharp and short lived that we chose to use the November of 2011 data point. It makes hardly any difference in the calculation.)

It’s only natural that when making adjustments to data, one’s own assumptions and interpretations may be injected into the mix. We presented raw data on the price of homes sold in a given month. This may or may not reflect exactly what is going on in the housing market, but we leave it to you to make those adjustments and interpretations. What this data truthfully, accurately says is that the price of a sold home dropped 25 percent from March of 2007 to November of 2011, and then increased 10 percent from November of 2011 to June of this year.

We’ve hit on what we think is a simple way to look at what’s happened in the real estate market over the past few months, without chasing the target around the room. Will conditions remain the same? Of course not – that’s the nature of the roller coaster real estate market.

We also understand that national numbers mean little to homeowners across the country who happen to live in stagnant, even still-falling markets. This infographic means nothing to the Atlanta homeowner whose home value fell 12.1 percent from June 2011 to June of this year. The family living in southwest Las Vegas, in a home that is still losing value, will beg to differ with the findings. The gentleman living on the slopes of Hualalai in Kailua-Kona, Hawaii, who just lost another 4.4 percent in home value, thinks this method is just crazy.

So, yes, your mileage may vary when the market is looked at through a national lens. With this kind of complexity and all the variations of local markets, it’s clear that homebuyers and sellers can really use a professional agent to help them navigate these roller coaster times. Riding the Trillion-Dollar Real Estate Recovery Roller Coaster.

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